JPMorgan's "Bitcoin-Alternative" Patent Rejected (175 Times)

Earlier in the week, we detailed JPMorgan's attempt to create their own "web cash" alternative to Bitcoin (and Sberbank's talk of doing the same). However, as M-Cam details,following the failure of the first 154 'claims', JPMorgan issued a further 20 claims - which were summarily rejected (making JPMorgan 0-175 for approved claims). As they note, The United States Patent & Trademark Office (USPTO)’s handling of applications like JPMorgan’s ‘984 application ("Bitcoin Alternative") highlights the need to fix a broken system - patent applications of existing inventions need to be finally rejected and not be resurrected as zombies (no matter how powerful the claimant).

On August 5, 2013 JPMorgan Chase & Co (JPMorgan) filed an application for an electronic mobile payment system which has eerie similarities to the popular online currency Bitcoin. Unfortunately for JPMorgan, all of the claims, totaling 175 claims, as of October 18, 2013, for published US patent application 20130317984 (the ‘984 application) have been either cancelled or rejected.

Analysis

Below is a view of JPMorgan’s ‘984 application.

After the initial 154 claims were abruptly cancelled, JPMorgan’s attorney submitted 20 additional claims which the examiner, Jagdish Patel, issued non?final rejections for all 20 of the new claims in October 2013. This makes JPMorgan 0 for 175 in terms of approved claims.The last 20 claims were rejected for non-patentability and indefiniteness under Title 35 United States Code (U.S.C.) Sections 101 and 112.

However, Mr. Patel might well have rejected the claims because of the ‘On Sale Bar’ rule under 35 U.S.C. Section 102(b), meaning that if the invention has been on sale for over a year then the invention is no longer patentable.Under the ‘On Sale Bar’ rule, the application could be invalid because it closely mirrors Bitcoin with features such as making free and anonymous electronic payments and Bitcoin has been in circulation since 2009.

Conclusion

The United States Patent & Trademark Office (USPTO)’s handling of applications like JPMorgan’s ‘984 application highlights the need to fix a broken system.

Patent applications of existing inventions need to be finally rejected and not be resurrected as zombies.

Part of the problem of a system in which one third of patents are seriously or fatally impaired is that companies are allowed to patent items that their competitors have already invented.

Obviously, large financial institutions want in on the online alternative currency action. But they would be well advised to pursue novel and non?obvious approaches that do not duplicate existing commercial options with respect to a virtual medium of exchange.

Representing numbers that would put the adoption curve of Obamacare to shame, the Bitcoin equivalents of Paypal, BitPay, announced last week that it has now processed over $100 million in BTC transactions in 2013, has increased its merchant base to over 15,500 approved merchants in over 200 countries, but most importantly, has seen a surge in the number of merchants using its BTC payment pricing plan, by 50% since October while the volume of transactions has tripled. While the surge in the currency adoption has matched the explosive rise in the USD-value of the currency, the news should comfort any lingering doubts whether Bitcoin is a credible payment system.

BitPay Inc, the world leader in business solutions for virtual currencies, announces it has processed over $100 million in transactions this year, and has increased its merchant base to over 15,500 approved merchants in 200 countries. Since the announcement of the new All Inclusive Pricing Plan in October, along with the integration with Shopify in November, the number of new merchants has increased over 50% and the transaction volume has tripled.

"This year, the 2013 holiday season was Adafruit's biggest ever. We are delighted to offer bitcoin payments via BitPay to our community and customers. It was fast and easy, hundreds of orders and happy customers getting educational electronics, using bitcoin!" shared Limor Fried, Founder and Engineer with Adafruit.

Bitcoin has "clear potential for growth and could become a major means of payment for online transactions” a Bank of America analyst told CNBC. As the number of Bitcoin users continues to increase, merchants such as Adafruit, BTCTrip, Alliance Virtual Offices, and Clearly Canadian, see the value of working with BitPay to help expand their business.

Which explains why Europe, which over a year was the first entity to cry foul about Bitcoin (recall from November 2012: "The ECB Explains What A Ponzi Scheme Is; Awkward Silence Follows") when the USD-price of one BTC was still in the double digits, is doubling down in its fight against the fiat alternative, this time as the European Union's top banking regulator is preparing to actively supervise the virtual currency. From Bloomberg:

Trading Bitcoins could bleed you dry, the European Union’s top banking regulator said as it weighs whether to regulate virtual currencies. Thefts from digital wallets have exceeded $1 million in some cases and traders aren’t protected against losses if their virtual exchange collapses, the European Banking Authority said today in a report warning consumers about the risks of cybermoney.

Virtual currencies such as Bitcoin have come under increased scrutiny from regulators and prosecutors around the globe. China’s central bank barred financial institutions from handling Bitcoin transactions last week and German police arrested two suspects in a fraud probe into illegally generated Bitcoins worth 700,000 euros ($963,000).

“The technology is still relatively immature and lacks the infrastructure, regulation and understanding of the risks that are taken for granted in conventional financial systems,” Matt Rees, assistant director at Ernst & Young LLP, said in an e-mail. “It is not surprising then that thefts, frauds and other deceptions are currently commonplace.”

Since Bitcoins exist as software, the virtual currency isn’t controlled by any government or central bank. The digital money emerged in 2008, designed by a programmer or group of programmers going under the name of Satoshi Nakamoto, whose real identity remains unknown.

The virtual currency gained credibility last month after law enforcement and securities agencies said in U.S. Senate hearings that it could be a legitimate means of exchange. The price of Bitcoins topped $1,000 as speculators anticipated broader use of digital money.

Because, you see, it is the possibility of theft that has regulators worried, not that alternative currencies could undermine the fiat system (especially in Europe where the artificially common currency is not exactly the world's most admired construct) the world is so hooked on.

So what does Europe propose? Simple: do more of what it truly excels at: tax stuff.

People holding virtual currencies may be subject to value-added or capital gains taxes, the EBA said.

The government of Norway, Scandinavia’s richest nation, said it would treat Bitcoins as an asset and levy capital gains tax on them.

“Bitcoins don’t fall under the usual definition of money or currency,” Hans Christian Holte, director general of taxation in Norway, said in an interview.

For virtual currencies to be regulated in the EU, the EBA would have to get approval from the European Commission, the 28-nation bloc’s executive arm.

We “support the EBA warning to consumers on the risks associated with virtual currencies,” Michel Barnier, the EU’s financial services commissioner, said in an e-mail.

In other words, it is only a matter of time before Europe does all it can to make the use of Bitcoin even more prohibitive, which in a Europe that is flooded with bad debt, with a banking sector whose credibility is non-existent resulting in loan "creation" plunging at a record pace, and a banking union "resolution mechanism" that is as improbable now as it has ever been, means more deposit bail-ins in a form that "fall under the usual definition of money" are just a matter of time.

SATURDAY, DECEMBER 14, 2013

Central Banks Launching Worldwide Coordinated Attack On Bitcoin

Update: Dec 15th, 2013.

Technical analysis for Bitcoin is basically meaningless with so much noise in the print, but the chart below from TheArmoTrader tells the story better than thousand words. After all recent events described below we are issuing our Warning and the line in the sand is $800 for Bitcoin now. With coordinated attack Bitcoin can be pushed below it, everything is prepared for it now. We do not have any inside, but has been in the Gold market and observed its manipulation enough to see what is coming. If somebody is interested now to Kill the Bitcoin brilliant idea hijacked by speculators with Crashing The Bubble - it is time. Whether there are enough interested parties to do so you have to decide for yourself. Will it happen now? We will see very soon. The most unfortunate thing is that some influential people are leading the uninformed "freedom fighters" towards just one more slaughterhouse now.

Update: Central Banks are getting all together now to celebrate Federal Reserve 100 Year Anniversary. If somebody thought that Bitcoin with other "listed" 42 Crypto-Currencies can challenge the banksters for real, please think twice and take at least the profit! We need more smart people with capital to join the real values when Gold and Silver will be shining again after Special Op "Gold 2.0" to distract 99% from Gold will be over. FED is still silent, but crackdown on Bitcoin is already in place. NowCentral Banks of Australia and New Zealand have issued Bitcoin warning.All these actions are coordinated, as you can see now. Pump it Up and Crash it hard - how many will be left to support the brilliant idea? We will note one more time very important coincidence: according to the reports JPMorgan is Net Long Gold now. Crashing Bitcoin will send Gold much higher, maybe JPMorgan knows something the others don't?

European Banking Authority Warns Consumers On Virtual Currencies.

EBA joins with its warning China, South Korea, Norway, France and other financial authorities from different countries. This warning and presented footprint for actions by authorities in order to attack and seize the assets involved is the most explicit among the ones we have seen so far. Unless Bitcoin is not the Special Op created by the FED to celebrate its Anniversary and 100 Year War On Gold, U.S. will follow soon with its actions. You can guess yourself whether it will be difficult to find evidence that some transactions on the particular exchange were involved in criminal activity and can affect Everybody Involved. Major risks according to EBA:

You may lose your money on the exchange platform

Your money may be stolen from your digital wallet

You are not protected when using virtual currencies as a means of payment

The value of your virtual currency can change quickly, and could even drop to zero

Transactions in virtual currency may be misused for criminal activities, including money laundering

And the punchline and footprint for further actions against Crypto-Currencies:

"Transactions in virtual currencies are public, but the owners and recipients of these transactions are not. Transactions are largely untraceable, and provide virtual currency consumers with a high degree of anonymity. It is therefore possible that the virtual currency network will be used for transactions associated with criminal activities, including money laundering. This misuse could affect you, as law enforcement agencies may decide to close exchange platforms and prevent you from accessing or using any funds that the platforms may be holding for you."

"[bitcoin is]...a very clever practical joke by someone who is having enormous fun exposing in the most sophisticated way imaginable the naivety of clever mathematicians, economists and/or rich speculators. ... or ... The cleverest con trick ever conceived, and probably one of the most rewarding."

"We have great interview to share today with everybody excited by the Bitcoin phenomena. You can decide whether it is bubble or not at this stage now. Making your "investment decision" about Bitcoin and other 42 Crypto-Currencies, please do not forget that you are listening to modern days California Gold Rush Shovels Shopkeepers. Please note that payment services in Bitcoin are not allowed now and the main attraction for Bitcoin becomes ... "saving" and speculation, we can certainly agree with the last one. And what makes it "safe": "...because Bitcoin can not be manipulated as easily as FIAT currencies" ... no comments here.

There are a lot of interpretations about the recent ban by China for its Financial Institutions to use Bitcoin. So it is very important to get the full information about the actual rules implemented by China. Your opinions about implications of these rules for the Bitcoin's future can be different from other people, but at least we have to get to the plain field in order to make any analysis. We will point out to the excitement of the speaker with "tons of speculative money coming into the picture". And now Litecoin Pump is On. Just listen to the interview and separate hype from the facts and how the Bubbles look like this days."

After years of allegations about involvement in Gold and Silver manipulation JPMorgan is chasing Bitcoin. So much is for Bitcoin "Gold 2.0" "Limited supply" - you can chose already from 43 listed crypto-currencies and now more are to come. After China and South Korea have banned Bitcoin from Financial Institutions the race is on among the Central Banks to outlaw it. Banksters "are always ready to help here. JPMorgan involvement in the "Bitcoin-Killer" is very interesting in light of recent reports from Turd Ferguson that for the long time JPMorgan is Net Long Gold and will stand to benefit from the Gold price going higher this time. Gold is spiking up this morning to $1260 and US Dollar is very close to the crucial 80.00 level - the end of 2013 will be very interesting to say at least."

"Madness of crowds is presented on the chart above and it is our top pick for the chart of 2013. Erik Steiner has created a very good presentation on Bitcoin: discussing in depth advantages and disadvantages of this particular crypto-currency and why it is now in the Bubble stage. His observations about the possibility that the Ponzi Scheme architecture is created by design in Bitcoin are very intriguing.

We will add that recent push of Bitcoin by Bank of America, CITI and Merrill Lynch are not very aligned with the "freedom fighters". It looks more and more that corporate interests are already running it wild if they were not the creators of "Gold 2.0" from the beginning in order to distract 99% from the real values of Gold and Silver.

Latest report from China shows that not all the world went crazy these days."and.....

The European Banking Authority (EBA) issued today a warning on a series of risks deriving from buying, holding or trading virtual currencies such as Bitcoins. The EBA said that consumers are not protected through regulation when using virtual currencies as a means of payment and may be at risk of losing their money. It also added that there is no guarantee that currency values remain stable The warning was issued while the Authority assesses further all relevant aspects associated with virtual currencies, in order to identify whether virtual currencies can and should be regulated and supervised.

According to the EBA, while virtual currencies continue to hit the headlines and are enjoying increasing popularity, consumers need to remain aware of the risks associated with them. In particular, consumers should be aware that exchange platforms tend to be unregulated and are not banks that hold their virtual currency as a deposit. Currently, no specific regulatory protections exist in the EU that would protect consumers from financial losses if a platform that exchanges or holds virtual currencies fails or goes out of business.

The EBA added that the ‘digital wallets' containing consumers' virtual currency stored on computers, laptops or smart phones, are not impervious to hackers. Cases have been reported of consumers losing significant amounts of virtual currency, with little prospect of having it returned. Also, when using virtual currency for commercial transactions, consumers are not protected by any refund rights under EU law.

The EBA also reminded that as transactions in virtual currency provide a high degree of anonymity, they may be misused for criminal activities, including money laundering. This misuse could lead law enforcement agencies to close exchange platforms at short notice and prevent consumers from accessing or retrieving any funds that the platforms may be holding for them.

Consumers should also remain mindful that holding virtual currencies may have tax implications, and should make sure that they give due consideration to whether tax liabilities apply in their country when using virtual currencies.

The EBA recommended that, if consumers buy virtual currencies, they should fully understand their specific characteristics and not use ‘real' money that they cannot afford to lose.

Background

About virtual currencies

A virtual currency is a form of unregulated digital money, not issued or guaranteed by a central bank, which can act as means of payment. Virtual currencies have come in many forms, beginning as currencies within online computer gaming environments and social networks, and developing into means of payment accepted ‘offline' or in ‘real life'. It is now increasingly possible to use virtual currencies as a means to pay for goods and services with retailers, restaurants and entertainment venues. These transactions often do not incur any fees or charges, and do not involve a bank.

More recently, the virtual currency ‘Bitcoin' has set the scene for a new generation of decentralised, peer-to-peer virtual currencies - often also referred to as crypto-currencies.

Virtual currencies can be bought at an exchange platform using conventional currency. They are then transferred to a personalised account known as a ‘digital wallet'. Using this wallet, consumers can send virtual currencies online to anyone else willing to accept them, or convert them back into a conventional fiat currency (such as the Euro, Pound or Dollar).

About the EBA

The European Banking Authority (EBA) is a regulatory agency of the European Union, it provides advice to EU institutions in the areas of banking, payments and e-money regulation, as well as on issues related to corporate governance, auditing and financial reporting. Its overall objectives are to maintain financial stability in the EU and to safeguard the integrity, efficiency and orderly functioning of the banking sector.

The EBA also promotes a transparent, simple and fair internal market for EU consumers in financial products and services. The EBA seeks to foster consumer protection in financial services across the EU by identifying and addressing detriment consumers may experience, or are at risk of experiencing, in their dealings with financial firms.

The EBA was established on 1 January 2011 as part of the European System of Financial Supervision (ESFS) and took over all existing responsibilities and tasks of the Committee of European Banking Supervisors.

What Do the Latest NSA Leaks Mean for Bitcoin?

By Kevin M. Gallagher

Could the intelligence community have a secret exploit for Bitcoin? It's rather obvious that Bitcoin presents a very strong financial incentive to break its cryptography, since such a vulnerability could allow an attacker to claim large amounts of virtual currency for themselves. But given the decentralized nature of the currency, it may also be a target for intelligence officials looking for ways to track its use.

Last week, we learned that the National Security Agency has led an aggressive effort to “break widely used Internet encryption technologies.” ​The Office of the Director of National Intelligence claims it “would not be doing its job” if it didn't try to counter the encryption used by terrorists and cyber-criminals. There is speculation that many protocols or crypto implementations have been compromised, deliberately weakened, or have had backdoors inserted. In doing so, the NSA has made the Internet less safe for us all, perhaps including those that wish to take advantage of Bitcoin's privacy benefits.

Bitcoin is an open source cryptocurrency; a peer-to-peer (decentralized) electronic cash system. It's also the most powerful distributed computing project in the world. Those two factors have already brought it under government scrutiny.

Earlier this year, the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued its guidelines on virtual currencies—which many within the Bitcoin community regarded as an overreach and an attempt to bring it under regulation. In April of last year, an FBI assessment anticipated it would be used by cybercriminals and malicious actors.

Bitcoin has recently landed on the radar of the New York Department of Financial Services, the California Department of Financial Institutions, and Thailand's central bank. In addition, the US Senate Committee on Homeland Security and Governmental Affairs recently sent a letter to the Department of Homeland Security asking for information on how it plans to deal with Bitcoin.

Clearly, Bitcoin is on the government's radar. Knowing how much effort the NSA, amongst others, has placed on cracking encryption, has it tackled Bitcoin too? First, we need to look at how Bitcoin works.

A KEY QUESTION IS WHETHER THE

COMPUTATIONAL CAPABILITY AND BUDGET OF

ANY ADVERSARY WOULD BE ENOUGH TO SHUT

DOWN THE BITCOIN NETWORK OR MAKE IT

UNRELIABLE.

Bitcoin employs an ingenious mix of two concepts: hashing and signatures. Hash functions typically generate a fixed-length output that maps uniquely to the original input, while signatures are often used to verify the authenticity of a digital message or document. The integrity of Bitcoin’s blockchain and consensus over the ordering of transactions depend on a hash function called SHA-256, which was designed by the NSA and published by the National Institute for Standards and Technology (NIST).

Cryptography researcher Matthew D. Green of Johns Hopkins University said, “If you assume that the NSA did something to SHA-256, which no outside researcher has detected, what you get is the ability, with credible and detectable action, they would be able to forge transactions. The really scary thing is somebody finds a way to find collisions in SHA-256 really fast without brute-forcing it or using lots of hardware and then they take control of the network.”

Elliptic Curve Digital Signature Algorithm (ECDSA) signatures are used to authenticate changes of coin ownership. A theoretical weakness in ECDSA could allow faster recovery of private keys and thus the ability to steal coins, but only people who reuse their wallet addresses would be vulnerable, Bitcoin developer Gregory Maxwell said. Maxwell insists that attacks exploiting such weaknesses would be detected almost immediately, and that they could deploy a replacement algorithm for ECDSA in roughly a month. “Problems with SHA-256 would be potentially more problematic as we cannot replace it in a backwards compatible way,” he said.

Weak random number generators (RNGs) are also implicated in Bitcoin security, as was the case with an Android security vulnerability revealed last month which resulted in the theft of coins. Cryptographic algorithms require a high degree of randomness in order to “seed” the generation of keys, and therefore RNGs are directly implicated in encryption strength—if you can predict or influence the output of an RNG, then you’re in trouble.

One pseudorandom number generator designed by the NSA, Dual_EC_DRBG, has been confirmed to have a backdoor. While the NSA does have a growing stockpile of cryptographic arms that can be used in cyber warfare, Maxwell thinks that “any break is so valuable they would dare not use it except in the most urgent cases.” Furthermore, certain attacks would only destroy Bitcoin itself—with the ensuing chaos effectively ruining its market value.

A key question is whether the computational capability and budget of any adversary would be enough to shut down the Bitcoin network or make it unreliable. With regard to the NSA, Green estimated, “If you calculate the cost of the mining hardware that would be needed to mount an attack on the Bitcoin network I bet you would get a number that today would be within their reach.”

Computer researcher Dan Kaminsky, who has independently investigated the security properties of Bitcoin, says that “it’s too early to tell whether any of our foundational ciphers have suffered undue influence. They certainly have the ability to mount a 51 percent attack, but then, so does everyone with a modicum of funding for custom chip design.”

A 51 percent attack refers to the scenario when a single entity has more power than the rest of the network combined. According to Maxwell, the amount of computing power needed would only “cost about 14 million dollars at retail,” making it an available option to governments like the US, Russia, or China.

A month ago, Reuters revealed that a secretive DEA unit was using intelligence intercepts and massive databases to launch criminal investigations. Could the NSA be assisting the DEA to identify and investigate operators and merchants on the Silk Road, the illicit marketplace accessible via the Tor network, at this very moment?

Green says he finds it likely that the government is already analyzing the blockchain for cyber-crime, drug trafficking or potential terrorism transactions—it would be surprising if they were not doing so. “What’s concerning to them is it gives an anonymous way for people to exchange money,” he said. Kaminsky seems to hint at the same. “As for analyzing blockchain transactions, there are many ways to track people on the Internet and that’s sort of what the NSA does," he said.

And what about the possibility of backdoors? Keeping software projects free and open source rather than closed and proprietary is widely regarded as a challenge to their insertion, since anyone reviewing the code could discover them.

“There are a lot of people who review the code—but not as many as I’d like," Maxwell said. "It’s unclear how hard it would be to insert a backdoor.”

Maxwell also described how he was once approached by academics to insert tracking code into Bitcoin, and how he not-too-politely declined. Gavin Andresen, the lead developer of Bitcoin and chief scientist of the Bitcoin Foundation, claims that he’s never been approached to do anything that would deliberately weaken Bitcoin. “Sneaking in a back-door way of stealing people’s bitcoins would be almost impossible.” he said.

Cryptography can be used for good or evil; it can create spaces of privacy and freedom or be used to surveil and penetrate those spaces. Snowden’s revelations have confirmed that the NSA considers people who use encryption suspicious, as the FBI does—and they target those communications, retaining and storing them for longer periods of time than plaintext, in the hope that someday, with better cryptanalytic capabilities, they might be cracked.

THE NSA NAIVELY ASSUMES BACKDOORS CAN

ONLY BE USED BY ITS OWN PEOPLE—WHEN

SUCH WEAKNESSES ARE OFTEN

DISCOVERABLE BY OTHER STATE AND NON-

STATE ACTORS.

Bitcoin has a thriving attendant economy with many legitimate businesses and startups, and it’s attractive to libertarian and anarcho-capitalist geeks who are passionate about countering the global financial system and banks. But there is more than enough indication that governments see Bitcoin as a threat, and its users are probably no exception to the intel agencies’ criteria for reasonable suspicion.

When asked about those who think the pseudo-anonymity of Bitcoin makes it an antidote to the surveillance state, Andresen responded that “decentralized technologies like Bitcoin or the Internet are powerful forces for good,” but they are not “panaceas that will suddenly turn oppressive surveillance states into transparent bastions of liberty.”

Over the last few days, computer security experts have been pressing for the journalists reviewing the Snowden documents to name specific algorithms and implementations that have been compromised on the altar of national security. The release of that information might also let us know whether we can still trust the security of Bitcoin.

Developers of free software projects implicated in privacy and anonymity such as the Tor Project and Bitcoin say that what’s needed is multiple implementations, more security testing, and more peer-reviewed code to keep such tools robust and safe from subversion. The NSA naively assumes backdoors can only be used by its own people—when such weaknesses are often discoverable by other state and non-state actors.

Nonetheless, the easiest way to steal bitcoins remains hacking a computer and taking the wallet file, so long as it’s not password-protected—which has been the method implicated in most of the large bitcoin heists to date. And if there’s any vulnerability in Bitcoin, it’s more likely to be in the software, or the way people use it, than the protocol itself. Meanwhile, there will be plenty of uninformed speculation on Twitter about whether Bitcoin is actually an NSA plot formulated to distribute the cracking of our secure communications.

When a pseudonymous 'Japanese' coder creates a crypto-currency that gains acceptance among thousands of vendors, it's dismissed by the powers-that-be and called a ponzi scheme by the MSM. One wonders what happens when the largest banks of the US and Russia sanction the 'idea' of a decentralized, unregulated, 'money' transfer system.

Via Bloomberg,

“We are at a new stage of technological development. I can’t imagine how it can be stopped,” Sberbank CEO Herman Gref tells reporters in Moscow.

Gref says virtual currencies need greater regulation

“These experiments must end in one or two crashes” before virtual currencies become firmly established, Gref says

Says Yandex Money isn’t “a currency but it’s a first step in that direction”

RELATED VIDEO

(Reuters) - People using Bitcoins are on their own when it comes to losses, the European Union's banking watchdog said on Friday in a formal warning to consumers on the risks of using unregulated online currencies.

The European Banking Authority said there was no protection or compensation for people whose "digital wallets" are hacked, a transfer of virtual money goes wrong or a platform is shut.

The warning follows similar announcements from the Bank of France and the Chinese central bank.

The EBA stopped short of telling consumers not to use online currency markets but said if they end up out of pocket there won't be a safety net like the compensation given to deposit holders when a mainstream EU bank goes bust.

"Currently, no specific regulatory protections exist in the EU that would protect consumers from financial losses if a platform that exchanges or holds virtual currencies fails or goes out of business," EBA said in a statement.

Bitcoin is not backed by any central bank or government, or by physical assets. Its value depends on people's confidence in the currency.

It has been gaining acceptance by the general public and investment community but has yet to become an accepted form of payment on websites of major retailers such as Amazon.com(AMZN.O).

"Cases have been reported of consumers losing significant amounts of virtual currency, with little prospect of having it returned. Also, when using virtual currency for commercial transactions, consumers are not protected by any refund rights under EU law," said the EBA.

The watchdog has been studying virtual currencies for three months and is still considering whether they can or ought to be regulated. It has powers to ban them, though questions remain over how this could be done in practice.

There are about 100 virtual currencies, with new ones appearing every week. Bitcoin is by far the best known.

The price of the bitcoin rose above $1,000 last month for the first time, extending a 400 percent surge in less than a month and fuelling concerns of a bubble.

EU regulatory officials doubt such published estimates as the currency and the platforms that trade it are not regulated.

Some platforms have been closed down amid concerns there could be a risk of money laundering, leaving those who held money on them nursing temporary or permanent losses.

The EBA said there could also be potential tax liabilities for users of virtual currencies.

Producer Of Physical "Casascius" Bitcoins Is Being Targeted By The Feds

Meet Mike Caldwell. He is the maker of what seems to be the most popular physical bitcoins on the market, the Casascius coin. All Mr. Caldwell does is have people who want the coins produced send him a certain quantity of bitcoin and then for a $50 fee he puts the private key on a physical coin and sends them back. For this horrible crime of ingenuity and creativity, the U.S. government naturally, has decided to target him. Because they are too busy ignoring the real financial crimes happening out out there…

From Wired:

Mike Caldwell spent years turning digital currency into physical coins. That may sound like a paradox. But it’s true. He takes bitcoins — the world’s most popular digital currency — and then he mints them here in the physical world. If you added up all the bitcoins Caldwell has minted on behalf of his customers, they would be worth about $82 million.

Basically, these physical bitcoins are novelty items. But by moving the digital currency into the physical realm, he also prevents hackers from stealing the stuff via an online attack. Or at least he did. His run as the premiere bitcoin minter may be at an end. Caldwell has been put on notice by the feds.

Just before Thanksgiving, he says, he received a letter from the Financial Crimes Enforcement Network, or FINCEN, the arm of the Treasury Department that dictates how the nation’s anti-money-laundering and financial crime regulations are interpreted. According to FINCEN, Caldwell needs to rethink his business. “They considered my activity to be money transmitting,” Caldwell says. And if you want to transmit money, you must first jump through a lot of state and federal regulatory hoops Caldwell hasn’t jumped through.

Caldwell doesn’t accept U.S. dollars or any type of fiat currency. You send him bitcoins via the internet, and he sends you back metal coins via the U.S. Postal Service. To spend bitcoins, you need a secret digital key — a string of numbers and letters — and when Caldwell makes the coins, he hides this key behind a tamper-resistant strip.

So long as you can keep your Casascius bitcoins safe, nobody can learn the key. To date, Caldwell has minted nearly 90,000 bitcoins in various denominations. That’s worth about $82 million at today’s exchange rate.

Because he runs a bitcoin-only business, Caldwell says there’s no Casascius bank account for authorities to seize. But he adds that he has no desire to anger the feds, whether he agrees with them or not. So he’s cranking out his last few orders and talking to his lawyer. He says this may spell the end of Casascius coins. “It’s possible. I haven’t come to a final conclusion,” he says.

What a complete and total joke this government is. Don’t they have anything better to do?

How Bitcoin works

But it may be best to think of its units being virtual tokens rather than physical coins or notes.

However, like all currencies its value is determined by how much people are willing to exchange it for.

To process Bitcoin transactions, a procedure called "mining" must take place, which involves a computer solving a difficult mathematical problem with a 64-digit solution.

For each problem solved, one block of bitcoins is processed. In addition the miner is rewarded with new bitcoins.

This provides an incentive for people to provide computer processing power to solve the problems.

To compensate for the growing power of computer chips, the difficulty of the puzzles is adjusted to ensure a steady stream of about 3,600 new bitcoins a day.

There are currently about 11 million bitcoins in existence.

To receive a bitcoin a user must have a Bitcoin address - a string of 27-34 letters and numbers - which acts as a kind of virtual postbox to and from which the bitcoins are sent.

Since there is no registry of these addresses, people can use them to protect their anonymity when making a transaction.

These addresses are in turn stored in Bitcoin wallets which are used to manage savings.

They operate like privately run bank accounts - with the proviso that if the data is lost, so are the bitcoins owned.

"In particular, consumers should be aware that exchange platforms tend to be unregulated and are not banks that hold their virtual currency as a deposit," the EBA said.

"Currently, no specific regulatory protections exist in the European Union that would protect consumers from financial losses if a platform that exchanges or holds virtual currencies fails or goes out of business."

China, the world's second largest economy, has also banned its banks from handling Bitcoin transactions, saying they had no legal statusand should not be used as a currency.

At the same time, there have been concerns that the rise in Bitcoin's value has been triggered by speculators looking to cash in on its popularity.

Alan Greenspan, former US Federal Reserve chairman, has called the rapid rise a "bubble".

'Easier for consumers'

Despite these concerns, some establishments across the globe have started to accept Bitcoins as a form of payment, just like cash or credit cards.

Coinbase said the number of people who use its Bitcoin wallet had doubled to more than 600,000 in the past two months and almost 10,000 new people were signing up every day.

It said it was also working with 16,000 merchants to provide Bitcoin payments.

"We are making it easier for consumers to buy, merchants to sell, and developers to build," the firm said.

Chris Dixon, of venture capital fund Andreessen Horowitz - which led the Coinbase funding, said in a blogpost that the Bitcoin platform could be used to develop new technologies.

He said the potential applications of Bitcoins include "machine-to-machine payments to reduce spam" and offering "low-cost financial services to people who, because of financial or political constraints, don't have them today".